Wednesday, 29 December 1999

B2-92: Mr Markovic, what has life been like in 1999?

Markovic: Each of us knows what his own life has been like. I think we have had a very hard time of it, that we have lived in a way unworthy of life in the heart of Europe at the end of the 20th century. Of course, that is a personal decision, the situation was the way it was throughout 1999 when certain events betook us, perhaps worse than anything else.
And as usual, the international community did us a disservice through the bombing campaign, but a great service to the current regime in that they gave the present government yet another reason, besides the economic sanctions which have now become rather a stale excuse for those who persist in believing in them, a point of reference for the man-in-the-street against which he can measure his life and the fact that he is hungry and freezing - there are always people who react like that in similar situations – but, OK, that isn’t important, the main thing is that the bombing’s stopped.

B2-92: In this country, year in, year out, we hear stories about how the living standard can’t fall any further, then we see that it can. The present average wage is around 80 DM. How can we possibly survive?

Markovic: Economic collapse is a personal choice and we can, indeed, go further than the lowest quoted limit. However, the problem lies not so much in the speed of economic collapse, but in its inevitability. It’s clear that at this point in time a system is functioning whereby the state disposes of most of the national product, which means that whoever manages to produce anything and make any sort of profit, the state will take it away from him and distribute it in such a way that everyone will at least have a loaf of bread and a plate of soup. It is legitimate for people to say that this is all right, that it is better than to have bombs falling on them, but all those who think in this way must realise that this is not the lowest point we can reach, after which the present government – if they prove unable to maintain even this level – can turn round and say "OK , folks, we’ve made a mess of things, we’ve failed to do our job, we’ll carry the can, no. If we agree that this is the moment when we are still not actually dying of starvation – though that is hard confirm as it’s difficult to monitor the situation – this by no means indicates that we won’t be starving to death tomorrow and it certainly doesn’t mean that the present government will say tomorrow "Look, we can’t assure you of this minimum anymore. Instead, they’ll say " OK, 1% of the population really have nothing to eat, but 99% still do".

B2-92: But doesn’t this certainty that we won’t starve come from the fact that God gave us good land.

Markovic: No, no, that’s the same kind of certainty we experienced with electricity. When we maintained that we supplied the whole of Former Yugoslavia with electric power and enough left over for export, that Slovenia and Croatia lived off our cheap electricity, and here we are now in the situation where the Deputy Prime Minister tells us: "Sorry, folks, we may not have enough electricity for heating". In the latest issue of "Economist Magazine", we look at what’s happened to broilers and eggs. It’s a fact that this production has completely stopped and tomorrow we may not even have that cheapest of meats – chicken. That’s what I mean by the inevitability of economic collapse, where there the bombing will be used as an excuse, sanctions will be used as an excuse, there will be the excuse of other pressures, like the activities of the opposition, and so on. And the speed of collapse is very well controlled by the government; it can slow it right down and make it last as long as it wants.

B2-92: Would you like to say a few words about the budget that’s been passed for next year?

Markovic: I’ll give you some figures that may not be methodologically or mathematically absolutely precise, but just to give people an approximate idea. Let’s take the complete public expenditure balance, that is, what the state takes from you and later distributes. These are expenditures on the army, police, pensions etc and in the year 2000 will amount to some 120 billion dinars. To make it simple, this means 10 billion dinars a month or 1000 dinars per person. Since we know that not every person is employed and if he is, he doesn’t earn that much, the most we can say is that one million people in this country produce something, do some kind of job , which brings the figure up to 10,000 dinars. In other words, we expect 10,000 dinars from every person who works and earns a wage in order to finance the army, police and pensions fund and this in real money terms. Inflation is not even envisaged.

B2-92: How is that possible?

Markovic: It’s well-nigh impossible, or rather, it is possible in the final analysis, but then it becomes clear what a huge redistribution we are talking about and what a knife-edge we are treading. Even taking into account official statistics, estimates indicate that such a balance would redistribute 55% of the national product, while only 45%, less than half, would be left for the actual wage-earners, and the rest must be given over to the state to patch up the holes that need patching, to maintain social peace and that blown-up expenditure on the army and police whose estimate for next year, I confess, really frightens me because I know that the army and the police are living badly, too – that’s a fact – and I end up almost fearing for their living standard.

B2-92: Yet the police force will be the only ones to receive all 12 monthly salaries.

Markovic: True, but is the money only going towards those 12 salaries…

B2-92: For the second time this month pensioners have been up in arms. First, they’re told – pensions will be paid out on Saturday, then a few get them the following Thursday. Then, all of a sudden, they start paying out all the pensions, but without telling anyone in advance. What’s happening?

Markovic: They’re playing games with the pensions. Probably pensioners will resent what I’m about to say and I don’t say that pensions are large, but what I do say is that the pensions fund represents a sum that cannot be borne in this sort of economic climate. If there are 1,2000,000 pensioners, and each of them receives 1,000 dinars, that makes 1,200,000 dinars every month, which absolutely exceeds our financial capabilities – that much is clear. I’m not one of those who advocates stopping pensions in any way possible, however inhuman – God forbid! – but this is a large sum of money which can easily be manipulated. And the state is playing the manipulation game when it prints the money for pensions, then withdraws that money and withholds it for 2-3 days because it earns a lot of interest, in the same way that it makes money on taking 15% of earned salary increases or on the fact that pensions haven’t risen in a year, etc. I think that the biggest money mass – and that is very sad for any state – lies in totally unproductive things. Unfortunately, this state has never created the sort of funds out of which they could really pay out pensions so it is eminently clear that they are paying them out of the earnings of those currently employed. It is quite true when pensioners say that they have earned their pensions over the years. It is equally true when those employed maintain that they are bearing the weight of the pensioners on their backs. Both sides are right, and neither side is guilty.

B2-92: How much is the country’s renewal and reconstruction programme costing?

Markovic: It is not fair to make fun of people who want to rebuild something that has been destroyed. There should be renewal – that is a noble endeavour. The problem arises when this becomes a systemic pattern, which goes something like this – you will work for free, you have your assignments and your deadlines, then someone comes along to criticise you for not finishing ahead of schedule, and all this serves to enhance the reputation of the particular politician designated to come and cut the ribbon. This work brigade system, as in 1946, is, first and foremost, inefficient as any system is where you don’t know how much what costs and where you don’t pay according to market laws, and, secondly, it is a system which places least obligation on the state, for the state has placed all its subjects on the other side of the divide – it is their duty to work and all the state has to do is to make sure they get a loaf of bread and plate of soup while they work. Tomorrow is another matter. I’m an economist and I don’t wish to get mixed up in politics. I agree that it is people’s legitimate right to elect the government they have and, when all things are said and done – personally, as an economist, I can say that this government won’t succeed in getting foreign loans, indeed, won’t assure any foreign aid – I have to admit that if the people have elected such a government and not seen fit to change it up to now, then they have, in a way, consented to all the consequences their choice entailed – to sanctions, to the bombing , to the fact that everything will fall about their ears and that they’ll have to go on living in these conditions. Why do I, as an economist, criticise this government? Because even in these conditions it has not done its job properly.

B2-92: Are the social divisions a product of the crisis or has this happened so that one class could get rich?

Markovic: I look at it this way: I don’t want to enter into the politics of it – the people chose the government, the government brought them sanctions, bombing, etc. and what the government ought to do. According to Mr Avramovic, if something were to change, if things started moving, the first thing to do would be to steer expenditure towards the poorest levels of society – through welfare and through increasing the lowest wages – the first for humanitarian reasons, the second for economic reasons – and in this way we would increase demand for what our industry can produce. From agriculture to car production, to that level – something which the present government has failed to do, not even attempting to prevent the break-up of society. I won’t go into the reasons why it has failed to do so.

B2-92: Aid has been promised from China. What does this mean in practical terms?

Markovic: We can make the following calculation. If the German mark is worth 20 dinars, and 1 million marks is 20 billion dinars, then 300 million dollars is around 600 million DM or 12 billion dinars and what have we actually gained by that? I told you the amount we needed for pensions , we know the size of our economic losses - this aid isn’t money that can do much in the long term, especially if, as I’ve heard, it’s being given in the form of a loan. These are credit arrangements due to be returned within a few months. They are extremely favourable, I hear, but still repayments have to start in a few months’ time. I simply think that we are not talking about a particularly large sum, that this money will not be invested in anything very sensible, that this is the sort of patching-up we have seen before and it doesn’t mean getting back into the world or any long-term arrangement. It may well be a policy of the East substituting for the West, but I don’t see any real prospects in it for us.

B2-92: There is a rumour that this money will be used to cover devaluation, to stabilise the exchange rate in the case of devaluation. Are you expecting devaluation?

Markovic: In the last issue of "Economist Magazine" we asked ourselves if money from China and Russia was intended for our elections. We didn’t speculate on whether this money would cover devaluation, but devaluation can occur at any time or never, given the system in operation here. It is quite immaterial what the ratio is between the dinar and the mark – that’s a political decision. In this country, every layman can tell you that inflation depends on whether money is being printed or not. And money is not being printed because of some loftily proclaimed monetary policy, yet at the same time it is being printed either to finance the elections or to assure social peace or – God forbid! – to finance a new war, etc. In short, money is printed for purely political reasons.

B2-92: Prime Minister Bulatovic said there would be no inflation next year.

Markovic: Yes, he did and he also said that the national product would rise by 14%, which is really pure fiction. If there are 14% more products, and the same amount of money, then those products will have to be 14% cheaper. If anyone believes those products will drop their prices, OK. In this country there is a lack of order and I am not convinced that anything depends on some rule, regulation, even the law , so why should something depend on the rate of the dinar? The import lobby will still get marks at 6 Dinars, even when the official rate becomes 20.

B2-92: Montenegro has a two-currency system. What is your view of this and how does it work down there?

Markovic: I think that a lot of dust has been raised over the whole issue – a two-currency system or not. Those who defended it tried to prove that this was a big step towards monetary sovereignty and, indeed, Montenegrin sovereignty per se, while those who opposed it tried to prove the same from the opposite corner. Those who were neutral either tried to prove it was a success or, rather too loudly for my taste, that it was a failure. I don’t think the matter is that important simply because something has been recognised that already existed in Montenegro, and only in Montenegro, whereby real values are not lost. In other words, if we calculate everything in marks, if salaries arrive in marks, prices are set in marks, then we don’t have to put up the prices of products and raise pensions, or resort to so-called indexation. The Montenegrins simply said: we refuse to drop below this line – no more, no less than that. Two issues ago in "Economist Magazine" we had a big round table discussion – we’d previously run comments on the two-currency system over 6-7 issues – and opinions were sharply divided because it is a question for the experts. What we should be doing is looking towards the year 2002, both formally and in everyday terms, when the mark becomes the euro. To be honest, I’m in favour of introducing a single currency. This currency could be the mark, but I’d prefer a serious currency which could still be called the dinar, or the convertible dinar, similar to what was introduced in 1994 but which never had a chance to prove itself.

B2-92: Is that possible in the present situation?

Markovic: Not without financial support, and quite considerable support, from abroad, and not without different conditions here, ranging from political change to a serious Central Bank, a valid monetary policy, etc. Though when I say that, it sounds as if I don’t know how difficult it is. But it isn’t difficult. It’s all a matter of political decision – that’s the hardest part.

Listener: What do you think of the economic future of Republika Srpska and the Federal Republic of Yugoslavia and will this look the same as relations between North and South Korea?

Markovic: I’ve just picked up the latest issue of "Economist Magazine" and will try to answer your question. The average wage in the FRY is around 80-90 marks, the average wage in Republika Srpska for the same month is 320 marks. So that this doesn’t surprise you and make you think it is a 4:1 ratio, because someone will immediately say "Ah, but everything’s more expensive there", we have run a comparison of what can be bought for this amount. On the one hand, the difference isn’t great – we compare a packet of Marlborough, a loaf of bread and a litre of petrol, and it turns out that the prices are about the same in both RS and the FRY. So the living standard in Republika Srpska hasn’t advanced as much as you’d expect in the circumstances, given that RS enjoys relatively normal relations with its neighbours and the international community. For the moment, it is not a copy of relations between North and South Korea, but compared to the past, - and remember Republika Srpska is geographically more to the west - the impressions of my colleagues who have been there confirm that it really looks Western. The question is whether this difference will increase over the next 2 to 3 years.

B2-92: What do you expect in the year 2000?

Markovic: It’s the easiest and the hardest thing in the world to be an economist. The hardest because all economic knowledge counts for nothing, and the easiest because anyone can come up to you and tell you that if political conditions don’t change, we can look forward to a continuation of this renewal and reconstruction. And as this programme goes ahead, so someone will be grabbing the awards and decorations. As far as the living standard is concerned, it will continue to go deteriorate, as there are no real economic foundationsto support a rise, or even maintenance of the present level. The year 2000 doesn’t deserve this sort of pessimism, but there it is…..